The best time to rebalance a portfolio is when market volatility causes significant shifts in asset allocations, allowing investors with a diverse mix to realign to their target risk levels and investment goals.

The market reached that point early this week.

Navigating the Current Market Environment

In today’s turbulent market environment, financial advisors are navigating portfolios that look very different than they did at the beginning of the year. As stocks neared bear market territory this week, other asset classes such as short-term bonds held steady and commodities like gold were near all-time highs, advisors faced a crucial window to reassess and rebalance.  

Market divergence is testing client tolerance for risk and return, but it’s also presenting a clear opportunity to bring portfolios back in line with long-term strategic targets.

For the year through Tuesday’s close, there was a wide gap between the performance of traditional holdings in a diversified portfolio: stocks, bonds and commodities.

Drilling down to a few ETFs that advisors may use to build a diversified portfolio, the iShares Core S&P 500 ETF (IVV) was down 15%, the iShares TIPS Bond ETF (TIP) was up 3% and the SPDR Gold Shares (GLD) was up 13.7%.

Diversified ETF Portfolio, Diverging Performance

Source: etf.com data as of April 8, 2025. Past performance is no guarantee of future results.

Why Rebalancing Matters Now

Market volatility has caused asset allocations to shift, especially for clients with broad diversification. U.S. equities, in particular, have dragged down long-term growth allocations, while defensive and inflation-sensitive holdings like precious metals and certain bond sectors have gained.  

Left unchecked, this drift can expose clients to unintended risk or missed growth potential once markets stabilize. Rebalancing in the current environment means trimming outperformers like gold or stable bonds and reallocating into beaten-down areas such as equities, turning paper gains into capital to buy assets trading at lower valuations.

Rebalance Timing and Communication Are Key

Rebalancing doesn’t mean predicting the bottom of the market; it means using discipline to buy lower and sell higher within a diversified strategy. While your clients may not explicitly communicate this, it’s one of the key reasons they hired you.  

For risk-averse or income-focused clients, it may be appropriate to rebalance more gradually in smaller increments.  For more growth-oriented clients, this may be a chance to lean into beaten-down sectors that may benefit most from a recovery.

Importantly, advisors should communicate the rationale for rebalancing clearly: It’s not market timing, it’s risk control. Framing rebalancing as part of a long-term discipline, not a reactive move, helps clients stay committed through volatility.

Tactical Ideas and Considerations

• Use inflows or dividends to rebalance passively without triggering capital gains.

• Harvest tax losses where appropriate to offset gains and improve after-tax returns.

• Consider client time horizons—short-term needs may warrant more stability, while long-term investors can afford to lean into equities.

• Stress-test portfolios under different scenarios (recession, inflation, recovery) to reinforce your rebalancing logic.

Looking Ahead

With rate uncertainty, sticky inflation and geopolitical tensions still in play, maintaining a flexible yet disciplined approach to portfolio management is essential. Rebalancing now can help clients stay aligned with their objectives, reduce emotional investing and prepare their portfolios for the next phase of the market cycle—whatever that may bring.

In a world where headlines swing sentiment daily, the value of rebalancing is not just mathematical—it’s behavioral. And that’s where financial advisors continue to make all the difference.